Release of Emergency Funds OKd : Finance: Judge’s ruling provides schools, cities, other agencies with $126 million to meet payrolls, other needs.

In an emergency hearing Monday in U.S. Bankruptcy Court, Judge John E. Ryan approved the release of $126 million in Orange County funds to schools, cities and other agencies that had been in danger of not making payroll and other crucial payments.

The funds had been frozen since Dec. 6 when the county became the nation’s largest municipality ever to file for bankruptcy.

Ryan approved an emergency motion by the Official Investment Pools Participants Committee, which was appointed last week by U.S. Trustee Marcy J.K. Tiffany to represent the interests of agencies and cities with money in the fund. The request had been pared down over the weekend from $153 million, after several pool investors voluntarily withdrew or cut back on their requests for money.

The funds, which will be disbursed today, are expected to help pool investors with “urgent and essential needs” only through the week. Attorney Patrick Shea, who represented the committee at the hearing, said the Orange County Water District had just $100,000 in cash left to “maintain water services.”

On Thursday, Ryan will be asked to rule on whether investors will be allowed to withdraw up to 30% of their original investment in the county fund for emergency needs.

Although the Orange County Board of Supervisors had approved the $153-million request last week, the city of Anaheim and the South Coast Water District withdrew their requests for $8.5 million and $2.1 million respectively after weekend discussions with the committee. The San Joaquin Hills Transportation Corridor Agency reduced its request from $20.5 million to $3.1 million.

County bankruptcy attorney Lee Bogdanoff said the committee had acted as a “reality check” for the emergency needs of each agency. “They tailored the relief to the bare bones,” he said.

The agreement approved by Ryan will give the largest amount to the Orange County Department of Education, county school districts, community colleges and regional occupational programs, which will receive $115 million in all to meet payrolls and pay vendors.

The Orange County Water District will receive $4.6 million to pay for essential services. For payrolls, the Orange County Transportation Authority will get $3 million and the Orange County Sanitation Agencies will get $900,000.

Bogdanoff said the county has indicated that it needs $25.6 million, but it made no formal request for money Monday.

Bogdanoff said that when the county does make a request it will be willing to “live by the same restrictions” as those governing the districts and cities that invested in the ill-fated fund, including the proposed 30% limit for fund withdrawals that Ryan is expected to rule on Thursday.

County bankruptcy attorney Bruce Bennett said the agencies that withdrew or reduced their requests may have done so in anticipation of Thursday’s hearing.

The possibility of a more flexible process for getting money took the pressure off initial requests, Bennett said.

Shea said that imposing a 30% limit is important because of a need to maintain cash in the fund.

Although Ryan said Monday that he was not yet prepared to rule on the 30% limit, he did indicate that he is likely on Thursday to approve another request by the committee. The committee is asking for the right to review and approve all future disbursements from the fund before sending them to the judge for final approval, Bogdanoff said.

Such a requirement would prevent any potential “run on the courthouse” by the pool’s 187 investors demanding all their money at once, Bogdanoff said.

Ryan agreed: “It seems to me that it makes a lot of sense, that before any agency thinks it must have a hearing before this court, that it must go through a committee process. That’s the only way this thing is going to work out with any order or consistency or sense. I am not anxious to micromanage the needs of 180-odd agencies.”

Stan Oftelie, head of the Orange County Transportation Authority, found Ryan’s comments “extremely encouraging,” adding “he clearly understands the importance of not disrupting government services.”

Other attorneys at Monday’s court session endorsed the need for an out-of-court method to deal with future requests for emergency funds.

“I get the feeling that the original requests were driven by desperation, by a sense of ‘We’d better get our funds when we can,’ ” said Ron Rus, who represents several water districts. “But those initial requests were moderated down to what’s absolutely necessary.”

Attorneys representing bondholders and companies that do business with the county agreed that a process for disbursing emergency funds is needed. But they want some safeguards to protect creditors’ claims, said attorney Patrick A. Murphy.

Ryan said the two groups should meet to refine a funding proposal before presenting it to him Thursday.